Abstract
The Netherlands showed economic recovery, supported by strong polices, public finances, and structural reforms. Executive Directors commended the strong fiscal framework and agreed that it meets the good practice standards according to the reports on the observance of standards and codes. They commended the sound financial system and welcomed the new Financial Supervision Act. They emphasized the need for fiscal consolidation for securing fiscal sustainability. Directors appreciated the authorities’ responsiveness to the recommendations of the Financial System Stability Assessment.
1. This staff statement provides information on economic and political developments that has become available since the preparation of the staff report for the 2006 Article IV Consultation. The new information does not alter the thrust of the staff appraisal.
2. Historical data on real GDP growth have been revised: up on an annual basis for 2003–05, but down slightly for Q1 2006 (Text Table). The main factor for 2003–05 was higher private consumption. There were also upward revisions to both investment growth (2003) and the contribution of net exports (2004). Although quarter-on-quarter growth in Q1 2006 was revised down, the revision was small (just 0.1 percentage point of GDP) and first quarter developments continue to be seen as broadly in line with staff’s full-year GDP projections (as indicated in footnote 6 of the staff report). The new first quarter data show lower government consumption growth than before, while investment growth is now positive instead of slightly negative. Meanwhile, as indicated in the staff report, exports remained robust and private consumption above expectations.
Revised GDP Growth
(In percent)
Quarter-on-quarter growth based on seasonally adjusted data.
Revised GDP Growth
(In percent)
| 2003 | 2004 | 2005 | Q1 2006 1/ | |
|---|---|---|---|---|
| Previous data | −0.1 | 1.7 | 1.1 | 0.2 |
| Revised data | 0.3 | 2.0 | 1.5 | 0.1 |
Quarter-on-quarter growth based on seasonally adjusted data.
Revised GDP Growth
(In percent)
| 2003 | 2004 | 2005 | Q1 2006 1/ | |
|---|---|---|---|---|
| Previous data | −0.1 | 1.7 | 1.1 | 0.2 |
| Revised data | 0.3 | 2.0 | 1.5 | 0.1 |
Quarter-on-quarter growth based on seasonally adjusted data.
3. Other economic developments are generally in line with a projected recovery. Employment continues to grow, with 35,000 new jobs created in the first quarter of 2006. Consumer confidence strengthened further in June, while business confidence remained at its higher level.
4. Year-on-year inflation has remained moderate. In June, it stayed at 1.8 percent (CPI-HICP), the same rate as in May and April. For January-June, it averaged 1.7 percent.
5. The CPB in June 2006 revised its growth projection—to 3 percent in 2006 (from 2.7 percent) and 2.8 percent in 2007 (from 3 percent). This revision mainly reflects stronger consumer spending in 2006 followed by a somewhat slower pace of consumption growth in 2007. Meanwhile, the DNB’s forecast, released in June 2006, shows growth of 2.5 percent in 2006 and 2.7 percent in 2007.
6. The Dutch government resigned after losing the support of the smallest coalition partner (D66). New elections are scheduled for November 22, 2006. In the meantime, the remaining coalition parties—the Christian Democratic Party (CDA) and the Liberal Party (VVD)—have formed a minority coalition government, which will finalize the 2007 budget preparations. These preparations were already well advanced, supported by D66, and appear to have broader support in parliament.